Last week, CBO released its latest Budget and Economic Outlook. In this report, CBO notes that the deficit in 2016 is expected to be $544 billion and federal outlays will rise by 6 percent, to $3.9 trillion, compared with 2015. Mandatory spending—such as that for entitlement programs like Social Security, Medicare, and Medicaid—will rise $168 billion this year. Federal spending on major health care programs will account for the largest portion of this rise as federal outlays for Medicare, Medicaid, exchange subsidies, and the Children’s Health Insurance Program (CHIP) will increase $104 billion (11 percent) in 2016. Last year was the first that federal spending on these programs surpassed $1 trillion and in 10 years federal expenditures for these programs will be more than $2 trillion. It is important to keep in mind this does not account for state spending on health care, which was nearly $200 billion in 2014 for Medicaid and $3.9 billion for CHIP. When state spending is added to these totals, spending on Medicare and Medicaid alone will reach $2 trillion in 2023. States have been spending roughly a quarter of their budgets on Medicaid for years now, and soon the federal government will be spending roughly a quarter of its budget on health care programs (as shown by the yellow line in the chart below).
Medicare spends 15 percent of its total budget on prescription medications —mostly due to high utilization, rather than high drug costs. The top 80 drugs, by cost and volume, are used by 18.7 million Medicare Part B and Part D beneficiaries and cost Medicare and private plan sponsors nearly $50 billion in 2014. This is according to data published by the Centers for Medicare and Medicaid Services (CMS). Using a weighted average to account for the low use of the most expensive drugs—shown in the chart below— reveals a different picture. For the top 40 Part B drugs, the weighted average total spending per user is $6,517. Given 20 percent cost share required of beneficiaries in Part B, the cost to the patient averages $1,292 annually. For Part D, the weighted average spending per user totals $2,424. Average cost-sharing for Part D beneficiaries for these drugs is 6.5 percent, costing beneficiaries, on average, $288 annually. Drugs with total annual spending over $10,000 per user (of which there are 38) are used by only 1 percent of all Medicare beneficiaries and account for only 3 percent of the total Medicare budget in 2014.
National health expenditures surpassed $3 trillion for the first time in history last year, with the U.S. spending an average of $9,523 per person in 2014. Total expenditures grew 5.8 percent from 2013—the fastest rate of growth since 2007. An increase in the number of individuals with private insurance and large increases in the number of individuals enrolled in Medicaid contributed to the growth in spending, along with the use of new pharmaceutical treatments; prescription drug spending increased 12.2 percent. The net cost of health insurance increased 12.4 percent—the second time since 2009 that the net cost of insurance has grown by double digits in a single year. With the implementation of hundreds of new health care regulations, the cost of health insurance has grown 41 percent from 2009 to 2014. Spending on hospital care increased 4.1 percent last year and spending on physician and clinical services increased 4.6 percent. The chart below shows the growth in health care expenditures, by category, for each year since 2009. During this period, health expenditures per capita have grown 1.1 percent faster than gross domestic product (GDP) per capita.
Nearly two years ago, the Affordable Care Act (ACA) implemented a new individual insurance marketplace, along with the promise of stability and affordability. The new individual marketplace was to rival that of the employer sponsored insurance (ESI) marketplace in stability and predictability, while premiums were to rise at rates much lower than the historical average.
On October 6, 2015, the Centers for Medicare and Medicaid (CMS) published its final rule on Stage 3 of the Meaningful Use Requirements for the Electronic Health Record Incentive Program. This program adjusts payments to Medicare and Medicaid providers for implementing and “meaningfully using” (or not) interoperable electronic health records (EHR) systems. These standards are being implemented in three stages to gradually move providers toward the desired end point: to “provide efficiencies in administrative processes which support clinical effectiveness, leveraging automated patient safety checks, supporting clinical decision making, enabling wider access to health information for patients, and allowing for dynamic communication between providers.”
Since 2012, Medicare Advantage (MA) and Part D plan sponsors have received payment adjustments based on their Star Ratings (determined by performance on certain criteria) in order to encourage better quality of care. Several entities have claimed that the Stars Rating Program does not appropriately account for the percentage of low-income beneficiaries enrolled in a plan. If true, this causes plans with high enrollment of such beneficiaries to consequently receive lower scores due to factors outside their control—lower socioeconomic status often makes it more likely that an individual will be sick and more difficult for that individual to adhere to a treatment plan. Plans’ 2016 Star Ratings seem to support this theory. Only 38 percent of Special Needs Plans (SNPs) received overall scores of 4 Stars or higher (necessary to receive a bonus), compared with 58 percent of Non-SNPs. Enrollment in SNPs is limited to individuals dually-eligible for Medicare and Medicaid; individuals who live in certain institutions (such as nursing homes) or require home health care; and individuals with specific chronic or disabling conditions.
The Kaiser Family Foundation recently released polling on Americans’ views of the pharmaceutical industry and the costs of prescription medications. Not particularly surprisingly, 55 percent of those polled expressed an unfavorable opinion of these companies and 72 percent said the cost of prescription drugs was unreasonable. Perhaps more surprising is that Kaiser reported 83 percent supported allowing the government to negotiate drug prices in Medicare, and 76 percent supported limiting the amount companies can charge for high-cost drugs.
A little-used social security payment rule and its connection to Medicare Part B premium increases has become a concern for many policymakers. Part B premiums will increase by half for 25 percent of enrollees, while the other 75 percent of beneficiaries will be spared any premium increase at all due to a Hold Harmless provision. A July report on Social Security Cost of Living Adjustment (COLA) indicated there will be no 2016 increase in payments to offset the Medicare Part B premium increase, but a Hold Harmless provision will protect three-quarters of Medicare beneficiaries from these premium increases while shifting the entire burden to the other 25 percent of beneficiaries. This shift will cause monthly premiums to increase from $104.90 to $159.30 for 25 percent of beneficiaries. State Medicaid agencies will pick up a substantial share of the $500 million tab for dual eligibles in 2016, while high-income beneficiaries could see their premiums spike to over $500.
The California Senate recently passed a bill intended to make many benefits of the Affordable Care Act (ACA) available to undocumented immigrants in the state. The bill is currently working its way through the state assembly, and will soon come to a vote in that body. The two-part proposal would allow undocumented immigrants to purchase health insurance through the state’s ACA exchange, CoveredCalifornia, and allow many others unable to afford insurance to participate in Medi-Cal, the state Medicaid program.
Between January 2011 and May 2015, less than $10 million in Medicare Part D improper payments had been recovered by the Centers for Medicare and Medicaid Services—less than 0.14 percent of improper payments made during this time period. Over the last decade, approximately 4 percent of all federal government payments each year were improper, but 9.5 percent of all Medicare and Medicaid payments last year were improper. Medicare and Medicaid have accounted for half of all improper payments by the federal government over the last 11 years, and since 2009, these two programs have been responsible for at least 55 percent of all improper payments each year. In 2014, Medicare Fee–for-Service (Parts A & B) accounted for 37 percent of all improper payments by the federal government; Medicare Advantage (Part C): 10 percent; Medicare Part D: 2 percent; and Medicaid: 14 percent.
The Centers for Medicare and Medicaid Services (CMS) recently released payment data for the 100 most commonly billed discharges by Diagnosis Related Group (DRG) at more than 3,000 hospitals using the Inpatient Prospective Payment System (IPPS) in 2013. These payments represent over 7 million discharges, or 60 percent of the total IPPS discharges billed to Medicare that year. The following chart shows the top 10 costliest DRGs to the Medicare system as a whole, counting payments by both the government (and/or supplemental private insurance) and beneficiaries (including copayments and deductibles). These 10 DRGs were responsible for nearly 1.7 million discharges with total payments per discharge averaging nearly $23,000 for a total cost of more than $26 billion. As illustrated, much of the cost is driven by the number of discharges—particularly for major joint replacement (DRG 470) and septicemia (DRG 871)—rather than the cost of the services. Percutaneous cardiovascular procedure (DRG 247) was the only DRG in this top 10 that was not also in the top 10 for number of discharges or average total payments per discharge.
The Affordable Care Act (ACA) allowed the creation of non-profit consumer operated and oriented plans (co-ops) which would be allowed to sell health insurance to a state’s residents either on or off the newly-created Exchanges. These co-ops were eligible for both start-up and solvency loans, and the Centers for Medicare and Medicaid Services (CMS) awarded $2.4 billion in loans to 23 new co-ops. One criteria for receiving such loans was a high probability of becoming financially viable. While most of the co-ops were expected to lose money in the first year (as most new businesses do), the Health and Human Services Office of the Inspector General found 19 of the 23 co-ops exceeded their projected losses; 10 co-ops lost more than $2,000 per enrollee. Projections show 11 co-ops are expected to still be losing money by the end of 2015. Maine’s co-op, the only one not to lose money in 2014, had the lowest priced plans (despite only drawing down 32 percent of the loans they were awarded and enrolling more than 2.5 times as many individuals as anticipated) and attracted 80 percent of the state’s marketplace consumers. The chart below shows the net loss per enrollee for each co-op by state, which averaged $2,712. The total loss was $539 million.
Over the last 50 years, Medicaid has transformed from a social welfare program for the neediest in society, to the largest public health insurance program in the country, covering more than 70 million individuals— over 20 percent of our nation’s population. Given the growth and scope of the program, it is important to examine the program and ensure that it is accomplishing its mission while conforming to current budget realities. Unfortunately, that is not the case. Reforms must be implemented in order to restore the program’s mission and ensure its fiscal sustainability.
The old politics of Medicare reform were to demagogue any proposed reform as an attempt to “throw granny off the cliff” for political gain, base motives, or both. These politics were on full display in President Obama’s recent assertion: "Today, we're often told that Medicare and Medicaid are in crisis. But that's usually a political excuse to cut their funding, privatize them, or phase them out entirely -- all of which would undermine their core guarantee.”
In 2014, national spending on health care products and services totaled $3.1 trillion, or $9,695 per person, and accounted for 17.4 percent of our gross domestic product (GDP). Medicaid enrollment grew by 12.9 percent in 2014, while spending on the program grew by 12 percent (federal and state spending grew 17.7 percent and 3.4 percent, respectively) totaling $503.3 billion and accounting for 16.3 percent of national health expenditures (NHE). Average spending per beneficiary in Medicaid was 1.4 times greater than spending on individuals with private health insurance. The chart below provides insight into where that money is going: a large share of the nation’s spending on nursing and retirement care, home health care, and other residential and community-based services are paid for by Medicaid.